"Decelerating revenue growth, coupled with a doubling of content costs, will severely constrain earnings growth," says Robert M. Wasserman, director of research at Dawson James Securities in Boca Raton, Fla., who rates the stock Sell.

Netflix and CEO Reed Hastings have had a tough time in the past year, as competition and content costs have grown.
Scott Eells/Bloomberg News

Barron's has been bearish on Netflix since late 2010 ("Time to Hit the Eject Button?" Dec. 27, 2010, and a Follow-Up, "No Happy Ending in Sight for Netflix," Oct. 31, 2011). The company could face further risk if a federal court rules this fall that DVDs made outside the U.S. aren't protected by a law that lets companies buy and rent them out indefinitely without paying royalties.

To be sure, Netflix still has believers. Capital Research Global Investors disclosed Friday that it had accumulated a 10.5% stake in the second quarter. But even this savvy media investor has lost money on Netflix, based on the shares' recent decline.

Sanderson's troubles aren't news to Barron's readers, who were warned last year (in "This Stock Could Really Lay an Egg," Aug. 22, 2011) that chicken-industry conditions would be the most challenging since 2008, and that the shares could come under pressure. The stock could fall to $33 in coming months from Friday's $39.68.

For awhile, our concerns seemed misplaced. The shares, at $42 last August, rallied to a high of $55.87 three months ago before retreating as the drought in the Midwest worsened. December corn futures have risen to over $8 a bushel from $5 in mid-June, and December soy-meal futures are at $495 a ton, up from $385.

Morgan Stanley analyst Vince Andrews, with the help of a proprietary chicken-pricing model that he and his team devised a year ago, presciently predicted how events would unfold. Andrews continues to have a price target of $33 a share on Sanderson Farms, based on high commodity costs and production levels.